For Regulators, It’s Not Just Your Actions Anymore.It's your corporate culture as well.

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Focus on a Culture of Compliance

FINRA has identified firm culture as an exam priority and has recently reemphasized that point in its planned targeted examinations. It is now the put up or shut up moment. Is your firm’s leadership making compliance and supervision issues a top priority? If not, you should expect FINRA finding a problem with your firm’s culture.1

Joshua Horn, Securities Compliance Sentinel

$300 billion – Fines and litigations costs related to cultural failures since 2010.2

FINRA

1 Joshua Horn, “Firm Culture; What is it and Why Does FINRA Care,” Securities Compliance Sentinel, February 29, 2016; 2 FINRA, “Establishing, Communicating and Implementing Cultural Values,” Targeted Exam Letters, February 2016

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According to FINRA, Compliance Can No Longer Be Skin Deep

“You can’t effectively manage your conflicts of interest if you’re not focused on your culture.”1

FINRA Chairman Richard Ketchum

… rather than asking to see compliance to-do lists checked off, regulators are seeking broader demonstrations of compliance culture.2

“Creating an effective compliance program requires companies to go beyond a list of written rules. Leaders need to understand the factors that influence employees to behave ethically or unethically to prevent unethical behaviors from endangering a company.”3

Nate Dvorak and William E. Kruse, Gallup1 Wall Street Journal, “Compliance ‘Culture’ – A Timeline of Regulators’ Comments,” Risk and Compliance Journal, February 5, 2016; 2 Caron Carlson, “Compliance Culture: FINRA Shifts Regulatory Focus,” TechTarget; 3 Nate Dvorak and William E. Kruse, “Managing Employee Risk Requires a Culture of Compliance,” Gallup Business Journal, March 29, 2016

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Compliance Must Extend from the Ground Floor to the Boardroom

Board and senior management should set appropriate “tone at top” with respect to:

• Culture of compliance

• Defining company values

• Defining corporate strategy

• Defining risk appetite1

1 David F. Freeman, Jr., Kevin M. Toomey, “Overview of Emerging Regulatory Expectations on Bank Conduct, Culture, Governance, Arnold & Porter,” March 31, 2016; 2 Wall Street Journal, “Risk Culture: More Work Needed from Board in Financial Services,” January 5 2016; 3 Joanna Belbey, “Wall Street Regulator Examining for Culture of Compliance,” Forbes, February 24, 2016

“…40% of boards at global financial services organizations have more work to do establishing and embedding the risk culture of the enterprise and promoting open discussions regarding risk.”2

Edward Hida, Deloitte Advisory Partner, Deloitte & Touche

“Banks should look at culture, and achieving consistent behavior and conduct aligned with firm values, as key to strategic success, rather than a separate work stream or add-on process to respond to short-term public, regulatory, or enforcement priorities.”3

Joanna Belbey, Forbes

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What FINRA Is Looking for

1. Develop clear cut policies that define cultural values. Involve the Board. Take steps to promote or enhance a culture of compliance.

2. Create processes for senior management to establish, communicate and implement your firm’s cultural values. Encourage middle management to adopt these values.

3. Create processes to identify violations, address them, and escalate when needed.

4. Identify and address subcultures within the firm that undermine the culture of compliance.

5. Use compensation to reward good behavior and penalize bad actors.

6. Reinforce adherence to the culture of compliance through promotions, compensation and other rewards.11 Joanna Belbey, “Wall Street Regulator Examining for Culture of Compliance,” Forbes, February 24, 2016

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Steps to Maintain a Culture of Compliance

• Share with your staff relevant articles and reports about U.S. and global compliance issues.

• Formally train your staff with an appropriate regulatory compliance training, such as those from American Bankers Association and other organizations.

• Learn from best practices of your peers and competitors.

• Consult with outside experts about tools and processes to keep you ahead of the compliance curve.1

1 Robert Half Management Resources, “Regulatory Compliance: How to Help Your Finance Team Stay Up to Date,” April 2, 2015

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Access the Tools that Pave the Way to Compliance

Call to learn more about simplifying compliance with Compliance Surveillance technology from EAI.

• FINRA- and SAS 70- ready rules

• Tailored reports like the 36-Month Mailer and Patriot Act report

• Direct integration with all data

• Automatic flagging of non-compliant or unsuitable transactions

• Separate workflow for flagged trades

• Comments and extra review on questionable trades

• Agent registrations, continuing education and personal account tracking

To learn more, call 503.644.3057 or visit eaiinfosys.com

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